But how does bitcoin actually work?

In this monologue, Grant Sanderson explains the concept of Bitcoin and cryptocurrencies by walking the audience through the steps of inventing their own version. Starting with a simple communal ledger for tracking payments among friends, he gradually introduces cryptographic concepts like digital signatures and public-key/private-key pairs to address trust issues. The discussion progresses to a decentralized ledger system where everyone maintains their own copy of the transaction history, secured by a proof-of-work mechanism involving cryptographic hash functions. Sanderson details how this system, organized into blocks chained together in a blockchain, allows for decentralized consensus and trustless verification, explaining the roles of miners, block rewards, and transaction fees, and concluding with the fundamental technology driving cryptocurrencies.